World Bank urged to reduce equity-to-loan ratio to free up funds for poor countries

Given big cuts in development aid by Europe and the US, think-tanks and other groups are urging the World Bank to reduce the equity-to-lending ratio of its main lending arm to free billions in additional lending capacity.

Reducing the equity to lending ratio of the International Bank for Reconstruction and Development to 17% from 18% would allow the bank to boost its lending capacity by $30bn (R555.37bn) to $40bn (R740.29bn) without burdening taxpayers or shareholders, or jeopardising its capital reserves, said Eric Pelofsky, vice-president of the Rockefeller Foundation.

He said a large portion of these new resources could be used to provide loans to help governments rapidly address actual or anticipated budget gaps and shore up healthcare networks, water and sanitation systems or other critical public systems affected by foreign aid cuts.

The bank could also offer short-term, low-interest loans to NGOs facing programme cancellations, layoffs and bankruptcy that would help them bridge to new long-term funding models, Pelofsky said.

The World Bank voted last year to change its internal lending guidelines and lower its equity-to-lending ratio by 1 percentage point as part of reforms recommended by an independent commission for the G20. It took a similar step in 2023, dropping the ratio to 19% from 20%.

Since US President Donald Trump returned to office in January for a second term, his administration has cut billions of dollars in foreign assistance in a review that aimed to ensure programmes align with his “America First” foreign policy. European governments have also cut their foreign aid budgets.

“Inaction will have concrete consequences,” Pelofsky said, citing studies which say US foreign aid cuts could put millions of lives at risk.

Jubilee USA Network, a religious development group, said it backs the push and urged the World Bank to act quickly.

“The World Bank can and should make this decision as soon as possible,” said Eric LeCompte, the group's executive director and a UN adviser. “With the significant cuts we've seen from the US and Europe on development aid, this action by the World Bank can fill this aid gap.”

Reuters